The Internal Revenue Service wrapped up its annual “Dirty Dozen” list of tax scams earlier this year, alerting taxpayers to guard against any ploys to steal their personal information or engage in questionable tax behavior. This is the second year the IRS has highlighted its Dirty Dozen list in separate releases over 12 business days. Taxpayers are encouraged to review the complete Dirty Dozen list on the IRS website and be on the lookout for these scams.
One of the hottest “dozen” is using an offshore bank or brokerage account as a tax dodge. Over the years, thousands of individuals have been identified as evading U.S. taxes by hiding assets and failing to report income from offshore accounts and then using debit cards, credit cards or wire transfers to access the funds. Using an offshore bank or brokerage account as a method of tax avoidance is something the IRS has been and continues to target. Even through several years of budget cuts, the IRS continues to vigorously pursue these offshore account cases, including the banks and bankers suspected of helping clients hide assets overseas whether or not the bank has a U.S. location. Thousands of offshore-related audits have been conducted by IRS investigators based on information provided by outside sources. In many cases criminal charges were also pursued which led to not just additional tax and penalties but also jail time for the taxpayer and banker.
Rather than wait to be caught, it’s in the best interest of the taxpayer to come clean and voluntarily report undisclosed income and meet prior year offshore filing requirements through the Offshore Voluntary Disclosure Program (OVDP). There have been more than 54,000 disclosures and more than $8 billion of taxes, interest and penalties collected since the first OVDP began in 2009. While still monetarily painful, enrolling in the OVDP will generally eliminate the risk of future criminal prosecution, reduce the severity of civil penalties and allow a reasonable calculation of the cost of becoming compliant with tax obligations. The IRS has said the program terms can change at any time and can also be terminated so it’s a good idea for anyone who has intentionally or unintentionally failed to report foreign income to take advantage of the program now.
For more information about reporting offshore income contact your LSL Advisor.